The first thing to keep in mind when it comes to the EURJPY pair is the fact that it is a cross and cross pairs are moving differently when compared with majors.
The difference between a major and a cross pair comes from the fact that majors have the US dollar as a component, while the crosses do not. The US dollar as the world’s reserve currency is maintaining it’s status as a funding currency and everything in the trading world is about the US dollar. It is not clear if this status for the US dollar brings benefits or not to the United States, but one thing is sure: crosses do not depend directly on it.
That being the case, EURJPY pair is moving based on the differences between the EURUSD and USDJPY pairs, two majors that are supposed to be inversely correlated.
However, this correlation is not 100% as that would mean that for one pip lower in the EURUSD market should move 1 pip higher in the USDJPY pair. Add to this the fact that the JPY pairs are highly dependent on what is happening with the equity markets and we have a pretty complicated picture.
Like any Euro related pais, this one is dependent on the European data and what is happening on the Eurozone as a whole.
Main data out of Europe is:
- ECB (European Central Bank) meetings are taking place now on a Wednesday starting with 2015 and are only eight meetings per year;
- press conference to follow is even more important than the interest rate decision itself as market is focusing on the questions and answers part and that one is the one that matters;
- PMI’s (Purchasing Managers Index) are released on a monthly basis and are showing the strength of each sector (services and manufacturing), giving an idea what to expect from the ECB next time they meet;
- CPI (Consumer Price Index), or inflation, is the one that matters as the mandate the ECB has is to keep inflation below or close to 2%. Any print that differs from that value should be a reason for the bank to act.
Important Economic Releases To Watch In Europe
It goes without saying that economic news out of Europe are hardly influencing the way the EURJPY pair is moving as well as economic news out of Japan.
When it comes to Europe, the most important is the CPI (Consumer Price Index) as it is representing inflation and the ECB (European Central Bank) is looking at inflation for setting up the monetary policy.
The next one in the order of importance is the PMI (Purchasing Manager Index) release as it shows if a sector is contracting or expanding and offers a clue regarding how the central bank is going to interpret the data: bullish or bearish, hawkish or dovish.
GDP (Gross Domestic Product) and unemployment rate are also pieces of data traders take into consideration when trading the EURJPY but the Euro does move when ECB is holding its monthly meeting as each and every meeting is being followed by a press conference. During this press conference, press representatives are asking questions and ECB President is answering and as a consequence market is fluctuating quite much.
After all, economic releases in a month are only for traders to form an educated guess about what the central bank is going to do next time a meeting takes place. If inflation, for example, is falling way below ECB’s target, then it is only normal to expect rates being cut and thus a negative for Euro as a whole and for EURJPY in particular.
Important Economic Releases To Watch In Japan
It is well-known now that the bond buying program in Japan, or the quantitative easing as it is being also called, is the most aggressive one in the world in the sense that, in order for you to have a comparison, it is three times bigger than the one in the United States but applied on an economy that is two times smaller.
This makes the dynamics in the Japanese economy being heavily influenced by the monetary policy Bank of Japan is conducting and this makes every speech, press conference, meeting, to be carefully scrutinized by traders all over the world trying to understand the faith of the JPY.
As mentioned in the first part of this article, regular economic releases like CPI (Consumer Price Index), GDP (Gross Domestic Product), Tankan report, etc, are also market movers in the EURJPY pair but are secondary in importance as market is focused most of the times on the direct correlation between EURJPY and the world equity markets in general, and US equity markets in special.
The classical relationship between interest rates and central bank decision applies here as well as it is known that higher inflation brings higher interest rates while lower inflation brings lower interest rates. This means whenever the CPI release is due, traders should embrace for an increase in volatility.